It is sometimes said that “a rising tide lifts all boats,” meaning that the benefits of a rising economy are ultimately enjoyed by everyone in society. But when is the lift greatest for those at the bottom of the income distribution? Lane Kenworthy has a nice blog post considering this question. Below is a figure from his post showing the income of the 10th percentile of income earners in Sweden and the United states from 1970 to 2000, a period of robust growth in both countries. The message is clear: low income earners enjoyed much greater gains in Swedish society than in the United States.
Lane speculates a bit about possible mechanisms, and suggests that probably most of the growth in income came from government redistribution in the form of transfers, and not through wages.
Just in passing I want to mention that the 1990s in the United States are a bit of a chestnut that Lane doesn’t fully crack — during that time income grew for the bottom the fastest even as government generosity in cash assistance fell. There was a booming economy that helped those able to work and there were countervailing changes in government transfers, such as an increase in the minimum wage and the EITC, but one would speculate that these mainly benefited workers (people in deciles 20-50). This also opens up a question that Lane mentions in his blog — the policies that benefit those at the very bottom need not be those that benefit the working poor. Government redistribution is a blunt instrument, so it’s often difficult to enact a set of policies that help both the very worst off and the near-poor.